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Huston Incorporation has a job-order costing system
Huston Incorporation has a job-order costing system. The company applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labour cost. The information below has been taken from the cost records of Huston Incorporation for the past year:
Direct materials used in production
$1,100
Total manufacturing costs charged to production during the year
(includes direct materials, direct labour, and applied factory
overhead)
$6,300
Manufacturing overhead applied
$2,800
Selling and administrative expenses
$1,200
Inventories:
Direct materials, January 1
$150
Direct materials, December 31
$70
Work in process, January 1
$200
Work in process, December 31
$430
Finished goods, January 1
$300
Finished goods, December 31
$200
Required:
a. Compute the cost of direct materials purchased during the year. (3 marks)
b. Compute the predetermined overhead rate that was used during the year. (3 marks)
c. Compute the Cost of Goods Manufactured for the year. (2 marks)
d. Compute the Cost of Goods Sold for the year. (2 marks)
Expert Solution
a) Computation of Cost of Direct Material Purchases during the Year:
Cost of Direct Material Purchases = Ending Direct Material Inventory+ Direct Material Used - Beginning Direct Material Inventory
= (70+1100-150)
Cost of Direct Material Purchases = 1020
b) Computation of Predetermine Overhead rate :
Direct Labour = Total Manufacturing Cost-Direct Material-Manufacturing Overhead Applied
= 6300-1100-2800
Direct labour = 2400
Predetermine Overhead Rate = 2800/2400*100 = 116.67%
c) Computation of Cost of Goods Manufactured:
Cost of Goods Manufactured = Beginning Work-in Process Inventory +Total Manufacturing Cost-Ending Work-in Process Inventory
= 200+6300-430
Cost of Goods Manufactured = 6,070
d) Computation of Cost of goods sold:
Cost of goods sold = Beginning finished goods inventory+Cost of goods manufactured-Ending finished goods inventory
= 300+6070-200
Cost of goods sold = 6170
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